Oil and Natural Gas

Abu Dhabi became a member of the Organization of the Petroleum
Exporting Countries (OPEC) in 1966. When the amirates federated in 1971,
membership was transferred to the UAE. Although Abu Dhabi officials
represented the other amirs, the officials exercised no power over the
amirs because each maintained control of his amirate's underground
wealth. Each ruler oversaw arrangements for concessions, exploration,
and oil field development in his own territory and published limited
information about such arrangements. Thus, the federal Ministry of
Petroleum and Mineral Resources has limited power to set policy and
engage in overall planning. In 1988 a presidential decree abolished the
Department of Petroleum and dissolved the board of directors of the Abu
Dhabi National Oil Company (ADNOC). The functions of these bodies
(administration and supervision of the country's petroleum affairs) were
taken over by the newly formed Supreme Petroleum Council, whose eleven
members were led by Shaykh Khalifa ibn Zayid Al Nuhayyan.

Discoveries in the 1980s and 1990s greatly increased the UAE's oil
and gas reserves. By 1992 the four oil-producing amirates had total
estimated proven crude oil reserves of 98 billion barrels and natural
gas reserves of 5.2 trillion cubic meters, with the majority of both
reserves lying within Abu Dhabi.

Based on the relative size of their reserves and on their long-term
development plans, Abu Dhabi and the other oilproducing amirates have
pursued differing policies. Abu Dhabi, with massive reserves, has on the
whole based its production and economic development plans on long-term
benefits, occasionally sacrificing production and price to meet this
end. The other amirates, less well endowed with oil and gas, have sought
to exploit their meager resources to produce short-term gains.

In the early 1980s, Abu Dhabi adhered to OPEC production ceilings
while Dubayy routinely exceeded them. After 1987, however, both Abu
Dhabi and Dubayy habitually produced above OPEC levels. In early 1987,
for example, when Abu Dhabi's OPEC quota was set at 682,000 barrels per
day and Dubayy's at 220,000 bpd, Abu Dhabi produced 1,058,000 bpd
(64 percent above quota) and Dubayy produced 365,000 bpd (60 percent
above quota). As a result, OPEC established a committee to promote
greater adherence to quotas by chronic overproducers such as the UAE.
For its part, the federation argued that its quotas were too small in
relation to its large reserves and to the quotas of other producers.

The UAE's quota was raised several times by OPEC, and it was at
almost 1.1 million bpd in March 1990. Not recognizing the OPEC figure,
UAE production at the time was 2.1 million bpd. By July 1990, oil prices
had fallen to US$14 per barrel, and the UAE agreed to a compromise
proposal that raised its OPEC quota to 1.5 million bpd. Meanwhile, among
Iraq's public accusations was that both Kuwait and the UAE had deprived
Iraq of much-needed revenues by driving down world oil prices through
production above their OPEC quotas.

After Iraq invaded Kuwait in August 1990, OPEC suspended quotas to
allow member states to compensate for the lost production of Kuwait and
Iraq. Producing an average of 2.1 million bpd, the UAE earned US$15.0
billion in oil revenues in 1990. In the following year, producing an
average of about 2.4 million bpd, the federation earned US$14 billion.
In March 1992, OPEC raised the UAE's quota to slightly more than 2.2
million bpd, which the UAE appeared to be observing. In March 1991, the
UAE announced that it would expand its oil production capacity to 4
million bpd by the mid-1990s as part of a multibillion dollar
development program.

Abu Dhabi

Abu Dhabi granted its first oil concession, covering its entire
territory, in 1939 to the Trucial Coast Development Oil Company (renamed
the Abu Dhabi Petroleum Company, or ADPC, in 1962). Oil was discovered
in 1960; production and export commenced in 1962 offshore and in 1963
onshore. ADNOC acquired 60 percent of ADPC in the early 1970s. In 1978
ADPC was reconstituted as the Abu Dhabi Company for Onshore Oil
Operations (Adco). In the late 1980s, the remainder of Adco's shares
were divided: British Petroleum (BP), Royal Dutch Shell Oil, and
Compagnie Française des Pétroles (CFP) received 9.5 percent each;
Mobil Oil and Exxon, 4.75 percent each; and Participations and
Explorations (Partex), 2.0 percent. The principal onshore fields were Bu
Hasa, Bab, and Asab. Onshore production totaled 267 million barrels in
1980.

In 1953 the amirate granted a concession to the D'Arcy Exploration
Company of Britain to look for oil in offshore and submerged areas not
covered in the ADPC concession. Abu Dhabi Marine Areas (ADMA), a
multinational consortium, took over this concession in 1955. The company
made its first commercial strike in 1958, and production and export
started in 1962. In 1977 ADMA and ADNOC agreed to form the Abu Dhabi
Marine Areas Operating Company (ADMA-Opco) for offshore work. In the
late 1980s, ADNOC owned 60 percent of ADMA-Opco; Japan Oil Development
Company, 12.0 percent; BP, 14.7 percent; and CFP, 13.3 percent. Offshore
fields included Umm ash Shayf, Az Zuqum, Sath ar Ras Boot, Dalma, and
Umm ad Dalkh. The island of Das, northeast of the island of Dalma,
became the center for offshore operations.

Unlike most gulf countries, as of the end of 1992 Abu Dhabi had not
claimed 100 percent ownership of its oil industry. ADNOC was established
in 1971 and, in addition to holding majority shares in Adco and
ADMA-Opco, was involved in producing, refining, distributing, and
shipping gas. ADNOC owned 51 percent of the Abu Dhabi Gas Liquefaction
Company, whose Das facility has sent most of its liquefied natural gas
(LNG) and liquefied petroleum gas (LPG) to Japan since 1977. In 1988 the
Das facility produced nearly 2.5 million tons of LNG from offshore
fields. ADNOC also holds 68 percent of Abu Dhabi Gas Industries, which
extracts propane, butane, and condensate at the Ar Ruways plant from
associated gas produced by the onshore Bu Hasa, Bab, and Asab fields.

Abu Dhabi's refining, at plants in Umm an Nar and Ar Ruways, is also
controlled by ADNOC. Total refining capacity in 1991 was 185,000 bpd, of
which 100,000 bpd was available for export. Marketing and distribution
are carried out by the Abu Dhabi National Oil Company for Distribution,
an ADNOC subsidiary. To buy refineries and gas stations in Europe and
Japan, ADNOC and the Abu Dhabi Investment Authority formed a joint
venture, the International Petroleum Investment Corporation (IPIC). In
1989 IPIC held a 20 percent share in a Madrid-based refining company.

The amirate's exports are pumped through terminals at Jabal az Zannah
and on the island of Das. There is a smaller terminal at Al Mubarraz.

Dubayy

The Iraq Petroleum Company (IPC) held a concession for Dubayy from
1937 to 1961. CFP and Compañía Española de Petróleo (Spanish
Petroleum Company--Hispanoil) obtained an onshore concession in 1954 and
formed Dubai Marine Areas (Duma). Continental Oil Company acquired the
IPC concession in 1963 and formed the Dubai Petroleum Company (DPC).
That same year, DPC acquired 50 percent of Duma and released some of its
shares to other companies. Oil was discovered offshore in 1966, and
production commenced in late 1969. The Dubayy government acquired a 60
percent share in DumaDPC in 1975.

Dubayy's oil reserves in 1991 were estimated at 4 billion barrels,
which will run out by 2016 if 1990 levels of production continue.
Dubayy's production policy has been to ignore OPEC quotas for the most
part, concentrating on exploiting the amirate's fields as efficiently as
possible. This has meant producing at or near capacity most of the time.
The principal fields are Fath, Rashid, and Falah offshore, and Margham
onshore. The amirate has two refineries, with a third planned for the
mid1990s .

The Dubayy government established the Dubai Natural Gas Company
(Dugas) in 1975 to process gas from offshore oil fields. By the early
1990s, the company also planned to process associated gas from the
onshore Margham field. Dugas's foreign partner was Scimitar Oils
(Dubai), a subsidiary of Canada's Sunningdale Oils. The Dugas processing
facilities at Mina Jabal Ali came on-line in 1980 with a capacity of
20,000 bpd of natural gas liquids (propane, butane, and heavier liquids)
and 2.1 million cubic meters of dry gas (methane) a day. The dry gas is
piped to the Dubai Aluminum Company (Dubal), where it fuels a large
electric power and desalination plant. A small part of the natural gas
liquids is locally bottled and consumed, but most is exported to Japan.
A special gas terminal at Mina Jabal Ali that can handle tankers of up
to 48,000 tons opened in 1980. The amirate's gas reserves are estimated
at 125 billion cubic meters.

Sharjah

In 1969 the amir of Sharjah granted a forty-year concession for
offshore exploration and production to a consortium of small United
States oil companies known as Crescent Oil Company. Oil was discovered
in 1973 in the Mubarak field off the island of Abu Musa, and production
began in 1974. Because of conflicting territorial claims, Sharjah has
production and drilling rights but shares production and revenue with
Iran (50 percent), Umm al Qaywayn (20 percent), and Ajman (10 percent).
By about 1984, Iran reportedly ceased transferring to Sharjah its
half-share of oil revenues, presumably because of the financial drain of
the war with Iraq, as well as Arab support of Iraq. In 1988 Iran
attacked the facilities at Mubarak, causing their closure for two
months.

In 1980 the American Oil Company (Amoco--later Amoco Sharjah)
announced a major discovery onshore of oil and gas in the Saghyah field.
By late 1983, output reached 35,000 bpd of condensate, which was
exported. In 1984 total production reached 62,000 bpd. In the same year,
the Emirates General Petroleum Corporation completed a 224-kilometer
pipeline to supply dry gas to power plants in the northern amirates. The
pipeline had a capacity of 60,000 bpd of condensate and 1.1 million
cubic meters per day of gas. After Dubayy and Sharjah settled their
border dispute in 1985, a pipeline was built to supply gas from the
Saghyah field to the power and desalination plant of the Dubai
Electrical Company at Mina Jabal Ali. An LPG processing plant that came
online in 1986 was producing 11.3 million cubic meters of wet gas per
day in 1987. The amirate's outlook was optimistic in 1992, with Amoco
Sharjah announcing a new onshore gas and condensate field and increased
reserves at existing fields.

Other Amirates

Ras al Khaymah has limited oil and gas reserves, which were initially
exploited in the early 1980s. By 1986 production was about 10,000 bpd,
with most of the revenues plowed back into exploration and development.
In that year, the amirate had completed pipelines from its offshore As
Sila field to the mainland and had established separation and
stabilization facilities, storage facilities capable of holding 500,000
barrels, and a 1,000-bpd LPG plant. By 1991 production had plummeted to
800 bpd.

Exploration and drilling in Ajman, Umm al Qaywayn, and Al Fujayrah
have not yielded significant finds. Some of this activity has been
funded by the federal government.